Overcome Barriers to Farm Succession Success

By and
November 16, 2018

Sustaining a farm business over generations is something to be celebrated, but at the same time can be an enormous challenge.

Besides the positive economic impact to the local community, there is also a public benefit from land held in farms that would otherwise be fragmented among a multitude of other owners.

Studies have shown that farm operations typically demand fewer public services and costs to taxpayers as opposed to other developed, non-agricultural uses.

For farm owners themselves, building a profitable operation and sustaining long-term viability creates a well-deserved sense of accomplishment and pride. It’s the family farm legacy!  Yet, while 78 percent of families intend to pass their businesses to their children, only 34 percent have created a formal succession plan. Even fewer have an up-to-date plan that accounts for current property values, changes in family member roles and other considerations that will change over time.

Next-Gen Transition

Unfortunately for many farm owners, a successful transition of business ownership to the next generation may be in serious jeopardy. The consequence of failing to plan can be severe. For example: potential farm heirs may leave the farm because they don’t see a path to own and control the business; farm heirs might not have the necessary management skills or may be unprepared to manage when they haven’t increased their responsibilities over time; and farm heirs might find that they are unable to buy out non-farm heirs.

A 2009 study published in the Journal of Extension titled “Communication Barriers to Family Farm Succession Planning” is frequently cited as an authoritative paper on the topic. Researchers who conducted the study “… sought to identify barriers to productive conversations and obstacles to making decisions regarding the future of their family farm.” The research team was surprised to find that in half of the families, respondents felt unable to make immediate progress with farm succession planning due to unresolved issues or uncertainty tied to the lives of individual family members.

Study participants frequently described specific examples of these “family issues”:

  1. Passive Communication – more emphasis on what was implicitly understood rather than explicitly communicated; a reliance on intrinsic understanding of respective roles and responsibilities
  2. Delays in Planning Due to Unresolved Issues in the Lives of Adult Children – personal issues with children’s career choices and their personal relationships
  3. Waiting for Children to Make Career Decisions – parents feeling that they had to wait until their children made their own decisions to stay on/return to the family farm
  4. Concern About the Stability of Successor’s Family/Marriage – parents having concerns about personal relationship issues in the lives of their children
  5. Efforts to Incorporate Children’s Perspectives into Conversations About the Farm – although it was understood by almost all parents that farm succession planning cannot be driven unilaterally by the senior generation, there was variation in how they went about asking for, or accommodating, children’s perspectives and concerns.

None of this would come as a big surprise to the attorneys that are experienced in succession planning work. Modern farms are highly specialized businesses, and with the addition of family ownership and control, can create a highly charged emotional atmosphere that makes ownership transfer complex.

As challenging as these situations may be, however, we’ve found that farm succession planning can help minimize future disagreements by reducing the number of surprises. Most farm succession planning attorneys are also skilled facilitators. Group facilitation is critical when you need to tackle issues like: dealing with your own mortality; giving up operational control; affordability concerns; and treating non-farm heirs in an equitable way.

Ground rules can be helpful, such as:

  1. Be Respectful of Others – be open-minded, check your ego at the door, listen to what others have to say and provide positive, constructive comments
  2. Confidentiality – what’s said here, stays here.

After the growing season is often a good time to think more strategically about family and farm business goals.

If you are unsure how to take the first step in farm succession planning, you might check with the advisors you already use and trust. Your farm consultant, loan officer and accountant may make up a good start.

Of course, any member of our legal team at Ruder Ware is also available for that first call. We work as a team, so you can be sure of reaching the right professional for your needs.

The main thing is to be proactive and get it done. It’s too important to put off.

 

© 2018 The Badger Common Tater Antigo, WI.  Reprinted with permission

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The content in the following blog posts is based upon the state of the law at the time of its original publication. As legal developments change quickly, the content in these blog posts may not remain accurate as laws change over time. None of the information contained in these publications is intended as legal advice or opinion relative to specific matters, facts, situations, or issues. You should not act upon the information in these blog posts without discussing your specific situation with legal counsel.

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